Indian Mutual Fund Industry and Investor Expectations from Credit Funds

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Abhishek Barui, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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Assets managed by the Indian mutual fund industry has grown to Rs. 13.49 trillion in December 2015 from Rs. 11.28 trillion in December 2014. That represents a 19.6% growth in assets over December 2014. Institutional investors hold 54.1% of assets while retail investors have increased their share from 45% to 45.9% in the last two years. Equity-Oriented schemes are now 32.5% of the industry’s assets, up from 29.9% In December 2014. The proportionate share of debt-oriented schemes are 43.3% of industry assets in December 2015, down from 45.6% in December 20141.

Compared to the global landscape where the AUM to GDP ratio averages 37%, the ratio in India stands at 7 to 8%2. The value of assets held by individual investors in mutual funds increased from Rs.5.19 lakh cr in December 2014 to Rs. 6.20 lakh cr in December 2015, an absolute increase of 19.3%. The growth in Institutional assets from Rs. 6.08 lakh cr to Rs. 7.29 lakh cr, an absolute growth of 19.8%. Individual investors primarily hold equity-oriented schemes with 59% investor asset in equity oriented schemes while the 88% of institutional assets are in liquid/money market schemes or debt oriented schemes. This reflects investment objectives of both segments, while the institutional investors look for capital protection and return optimization, the retail investors look for long-term growth.

Growth in GDP in the last few years have resulted in surplus income available to households. Indian households have always shown a preference for bank deposits and physical assets but the FY15 data reveals decline in this trend and increase in the investment in the financial assets.

With equity markets becoming extremely volatile due to concerns of global economic slowdown, investors may look towards safer options like Government bonds. But with Fed expected to hike rates, due to strong labour market and steady growth in US, there is a chance for foreign investors to pull out the investments from the emerging markets. Still in the emerging markets, India seems to be the best bet with a secular growth outlook.

All these factors make up for an unpredictable outlook for the investors in both the equity and bond markets. With the fundamentals improving for the Indian companies and yields slightly higher than the G-Secs, the corporate bonds funds look to be one of the best bets for the investors. But they need to be ascertain of the risks associated with them before investing in some of these funds.

1 Association of Mutual Fund in India (AMFI)

2 PwC, Indian mutual fund industry challenging the status quo, setting the growth path

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